To say we have seen everything there is to see at foreclosure auctions would probably be an understatement. We have seen fist fights on the courthouse steps, guns pulled, people not having a clue as to what they are buying, or even what it is really worth. You name it, it has probably happened at an auction and we have been there to see it. Our company attends close to 200 distressed real estate auctions every year. I, personally, probably attend close to 20 of those and have been doing so for nearly twenty years
The following rules may seem simple enough to follow, but I have yet to attend an auction where the majority of the bidders failed to follow one, if not all of these rules. This failure prevents them from truly leveraging the huge pricing advantages that can come with buying properties at a foreclosure auction.
1 | Due Diligence: Know what you are buying.
This one seems simple enough, right? Wrong! You will never go to an auction and say “Wow, those were all reasonable bids.” Investing blindly is dangerous and very common. Thanks to the internet, due diligence gets easier every day, but investors also become much more complacent in their research.
True Story: A regular buyer in a certain county only relied on Google photos for his research. Risky, but he had a formula that normally worked for him. He showed up at an auction willing to pay nearly retail price for a property (which happens a lot). Google indicated that it was a great house, great location and well maintained. Google’s photos were not even a month old, so probably not much had changed, right? Wrong! Three days prior to the auction, the occupant/owners burned the place to the ground.
REMEMBER: Distressed real estate is sold “As Is – Where Is.”
2 | Bidding: Know how much you plan to pay and stick to it.
Not only do you need to stick to your bid, but you need to leave a cushion for the worst-case scenario. As long as you always leave room in your budget for surprises, you will be a winner in the end.
3 | Pay Attention: Be prepared for the pressure.
Again, seems like a pretty simple rule right? There has never been an auction where somebody didn’t say, “Oh, I didn’t mean to buy that.” Tax lien auctions can be extremely fast paced, whereas bank foreclosure sales feel as if they go on forever. If an item has to be recalled because you cannot buy it or did not mean to, one way, or another you are still going to pay for it. In some auctions, whether you meant to buy it, or not, you own it. This isn’t Walmart folks: Receipt or no receipt, once you buy it you cannot return it.
4 | Keep Your Temper: Leave Your Emotions at Home.
If you choose not to follow any other rule, follow this one! You would think there would be a level of professionalism at auctions, but guess again! Want to get out some built up frustration and intimidate somebody? Then an auction is just the place for you. Soft skinned and a little shy? Auction is definitely NOT for you.
Many seasoned buyers consider it their job to intimidate, confuse, and question your bids and thereby, your confidence. It’s part of keeping the prices down. On the flipside, you may get angry and irritated by these tactics, throw caution to the wind and break all your set rules, just to prove a point and win the bid. If I break your confidence, you are going to stop bidding and I will get the property for what I wanted to pay. If I anger you, you are going to bid too much and not be back to compete against me next month.
5 | Don’t Break the Law: Stay Away from anything that could be considered collusion.
Collusion and Bid Rigging are big no-no’s. You might be at a small auction and there are only 3 of you there. Somebody says, “How about I buy this one and then you buy that one?” You agree, and suddenly you have been wrapped into a Federal Crime punishable by up to 10 years in jail. We have seen bidders go to jail for doing so with as little as a wink here and a nod there. I and all of our bidders go through Anti-Trust training for this very reason. Bidders are encouraged to go do their job and go home. Don’t address casual conversation with your fellow bidders and certainly don’t go have lunch afterwards.
Buying distressed real estate at an auction can be extremely profitable and also a lot of fun. However, it does require a little more than just common sense. If you are interested in bidding in auctions, I suggest you attend a few first. There are many different categories of distressed real estate and a different auction format for each. Go learn who the usual suspects are and who is there to just buy one, or two. As long as you are not bidding that day, talk to the other buyers and ask questions. Most buyers will not share their strategy, but they will be happy to talk about all the other buyer strategies in the room, or on the steps.
Charles Sells is the CEO and founder of Platinum Investment Properties (PIP) and a regular contributor to Think Realty’s print and digital publications. He will be training investors on how to get the very best prices in their local markets using a variety of strategies at the Think Realty National Conference & Expo in Atlanta, Georgia, on October 14, 2017. You can reserve your spot in that session now by clicking here.